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How to Understand a Title Commitment
Merideth Nagel claims that one of her favorite topics to speak to Realtors about is the title insurance commitment, mostly because it is an often overlooked part of a Realtor’s practice. Despite being overlooked, it is super important, and an understanding of what it is and what it does can allow you to distinguish yourself from the other Realtors in our market.
A title commitment is much like a car insurance binder, which many of you are already familiar with. For example, if you go on the internet and secure car insurance, they will send you a binder as their promise to insure you when you pay for your policy. That’s a lot like what a title commitment is – it is a promise by a title agent to issue title insurance to the buyer under the terms and conditions that are included in that title commitment.
Most of you use the standard real estate contract, which states that those title commitments do not have to be produced until five days prior to closing. The problem with that is if there is an issue that is raised in your title commitment (such as a probate that needs to be filed or corrective deeds that must be obtained) and you don’t see it until five days prior to closing, you’re going to have a problem getting that closing done on time. It is unlikely that you can get issues like that resolved in such a short amount of time. Thus, one of the most important things about a title commitment is understanding the need to get it sooner, rather than later.
In the standard contract, you also have the ability to fill in the blank for the number of days allowed before you receive the title commitment after the effective date of the contract. We suggest ten days – that gives enough time for the title agent to order the search and get it back to you. Not only should you ask for them in a reasonable amount of time, but you also need to make sure that you actually get them. Too often, most Realtors don’t see the title commitment until they sit down at the closing table. That’s too late to review and make sure that your client understands it and too late to solve problems if there are any withstanding.
Remember that a title insurance company’s job is to sell title insurance. It’s not their job to represent the seller or the buyer, or you. With that in mind, it’s important that you understand each section of the title commitment and that you not only get it in a timely manner, but that you make sure your client gets to review it and understands it.
Many of you may not be familiar enough with a title commitment to feel as if you can advise your clients on its contents so we’re going to go page-by-page and review one with you.
Schedule A is the first page of a title commitment. On this schedule, there’s a few things you need to look for:
- The right contract amount (because this is the amount of title insurance that will be given to the buyer)
- The right loan amount (because this is the amount of title insurance that will be given to the buyer’s lender)
- The buyer’s name is spelled correctly (this is wrong more often than you think!)
- That the people listed as the sellers are actually the people you’re under contract with (sometimes this is the first place you’ll find out that John Smith is the only person who signed the contract but he in fact owns the property with Jane Smith, who did not. This is a problem!)
Schedule B is separated into two parts: Section I and Section II.Schedule B-I contains the requirements and those are exactly what they sound like. Those are all the steps the title company must take in order to issue that title insurance policy.
Schedule B-I contains the requirements and those are exactly what they sound like. Those are all the steps the title company must take in order to issue that title insurance policy.
Take a close look at the requirements section because this is the section where you may see problems pop up. Some of these are common, like in the above example it states that one of the owners is deceased and a certified copy of the death certificate it required. However, this is also the place where you will encounter issues like a probate requirement or that there is a guardianship in place that will require a court to approve the sale. Looking at these early in the game helps you to start working with the title agent and sometimes a real estate attorney to resolve these problems before closing.
Schedule B-II is the section that lists the exceptions to the title policy.
Just like when you buy health insurance, there are exceptions to title insurance coverage: things that will not be covered if they actually happen. That’s what this page is about. Those are things that, if any issue arises as to the exceptions listed, the coverage will not be in place for the buyer. Again, remember, title insurance companies sell title insurance so it’s very easy for them to throw an exception on and not provide coverage for an issue instead of clearing it up. For that reason, you’re going to want to look at these exceptions, make sure that you understand each of them, and that you agree to each of them.
For example, some standard exceptions that we see (the kind that you should have no issue with) are:
- The existence of a homeowner’s association
- Taxes for the upcoming year
However, if you see things such as a mortgage from the prior owner (this is a real example from our experience as a buyer’s representative), this is not acceptable. Read the exceptions, make sure you understand them, and make sure you understand the impact they could have on your buyer.
Sometimes when we talk about title insurance, a Realtor’s eyes glaze over – and that’s okay! Your job as a Realtor is to help your clients buy and sell property, we totally understand that. However, the title insurance is an often overlooked piece of information that should be on your list right under the inspection and appraisal.
If you have any questions about title insurance or a specific commitment your client has received, please feel free to give us a call! We are always happy to help. Give us a call at: 352-241-8629.